Investment Rising In Africa?

The level of investments has steadily increased in various sectors of Africa's economy, including air transport, and growth more marked therein in the last decade. Africa's economy is expected to grow at an average 5.6 per cent in 2011, while some countries expect a double-digit growth, which would be driven by investments and improving econo-social and politico-econmoic conditions. Foreign direct investment (FDI) inflow in Africa, according to UNCTAD, FDI and World Investment Report 2009, showed increase from 2003 to 2008; and for 2007 it amounted to $69170 billion, and $87647 billion for 2008. In the East Africa region specifically, President Jakaya Kikwete of Tanzania was recently quoted as saying that total intra-EAC trade has increased from $1.85 billion in 2005 to $3.5 billion in 2009, while total Foreign Direct Investment (FDI) into the region has risen from $910 million to $1.72 billion during the same period. And local investors are increasing their efforts in the continent. Among others, Mr. Zemedeneh Negatu, Managing Partner, Ernst & Young, revealed at an investment forum in London in June that Ethiopians are investing in their own country. Those investing in Africa include the development banks and private companies/investors, among others.

Because poor infrastructure is Africa's major setback, strong focus on infrastructure in Africa reaching $55 billion in new investments was experienced last year alone, says African Development Bank Group (AfDB) President, Mr. Donald Kaberuka, who spoke last June in Lisbon. He says the AfDB has been leading the way, financing more than 150 new infrastructure projects over the last five years, stating that the African Union (AU) has entrusted AfDB with "the mandate to bring Africa's infrastructure to a whole new level."

Aviation Needs More

News of investments in Africa may be heartwarming, but the capital-intensive aviation industry is yet to receive such investments to transform it to an effective growth catalyst in Africa. Overall, more attention still goes to telecom, agriculture, health and rural poverty, among others, thus thinning investments in air transport. A World Bank report in July 2011 presenting a snapshot of infrastructure projects in low- and middle-income countries and focusing on Sub-Saharan Africa shows that out of a total investment of $95,184 billion covering energy, transport, telecom, and water and sewerage from 1990 to 2009, transport received $11,812 billion, while telecom received $73,306 billion. Based on this report, and considering the other modes of transportation, the actual investment in air transport would be less than the figure above. Air transport in Africa requires intensive direct investments given the need to replace predominant older and inefficient aircraft - (already at variance with global eco-efficiency targets, and largely unfavourable to airline economics) -; dilapidated airports, poor air navigation and general aviation infrastructure and dwindling aviation manpower in Africa.

Rewarding Opportunities

The impressive growth rate of African economies is a primary reason to invest in the region. Mr. Kaberuka says: "During the past decade, Africa witnessed its fastest period of growth in the last fifty years. Several independent reports attest to the new economic momentum in the continent." While President Kikwete, like many foreign investors, expresses confidence in the investment opportunities on the continent, investing in Africa today should not just be seen primarily as aids or support to the region, but rather as a self-rewarding endeavour which will benefit immensely from the fast-growing untapped trillion-dollar African air transport market and robust economy. Says Mr. Kaberuka: "There can be no doubt; millions of people in Africa over the last decade have been lifted out of poverty. There have been gains on many social indicators, in many countries." In addition, Boeing and Bombardier forecasts show that Africa's aircraft needs in the 2011 to 2030 period remain robust, bringing investment opportunities, where the cost of new aircraft could be anywhere from about $15million to over $300million.

There is a strong correlation between air traffic growth and airports growth. And as air traffic is projected to rise over the next 30 years, with Africa's higher than global average, the opportunities in airports also surge. Airports in Africa are chiefly under the 5 million-passenger mark, while many with outdated facilities need investments to upgrade and expand. Increased traffic also connotes the need for improved air traffic management facilities and training. According to Mr. Rotimi Arogunjo of the Nigerian Civil Aviation Authority (NCAA), "As of 2005, over 40 States had commercialized their ANS functions to various degrees, with capacity to finance new large facilities and technology." Currently, there is room for commercialization and improvement of air traffic services in Africa - driven by increasing traffic as well as the global transition to satellite-based navigation. There is also need to invest in aircraft maintenance organizations (AMOs) especially (in West Africa) where airlines currently depend on AMOs outside the region for aircraft maintenance.

Given the huge opportunities in the various aviation sub-sectors in Africa, it is crucial that public and private sector opportunities be widely publicized using new media to enable investors easily locate such opportunities.

More Conducive Environment For Investors

Africa's air transport industry can be made much more conducive to both local and foreign investors through a combination of factors including policy and regulation, improved management systems, politico-social stability, and further encouragement of the already growing economy, among others. At the heart of designs to kick-start concrete investments in Africa's aviation industry are favourable policy and regulation, and by extension, liberalization of African skies on the basis of the Yamoussoukro Decision (YD). Liberalization has positive impact on competition, GDP growth, and investment, according to a report, "The Impact of International Air Service Liberalisation on Mauritius", prepared by InterVISTAS-EU Consulting Inc., July 2009. Already, authorities in Botswana are liberalizing Botswana's domestic market and inviting potential operators to participate. Such legislations are important for all States' domestic markets that have restrictions. In Ghana, the authorities are working to enable a number of operators to begin flights soon. The Moroccan, Nigerian and South African markets are good examples of domestic liberalization; they only need to embrace continent-wide liberalization. Essentially, open skies should be targeted by regions in the immediate- to medium-term, leading to the Single African Sky (SAS) in the longer-term.

ECOWAS' Vision 2020 for the air transport sector is to develop a sound and seamless regional air transport system with safe, reliable, efficient and affordable air services, well-connected within West Africa and integrated with the global network, says His Excellency James Victor Gbeho, President of the ECOWAS Commission.

ECOWAS has recently held meetings pursuant to these objectives, raising hopes over imminent change in the region.

Similarly, the COMESA-EAC-SADC Tripartite established in 2005 has the main objective of strengthening and deepening economic integration of the Southern and Eastern Africa region.

Working jointly, the RECs and other partners can quicken liberalization in Africa as (African) investors earnestly demand. The Managing Director of Air Namibia, Mrs. Theo Namases, underlines the need to open up regional markets, as the Namibian carrier seeks to penetrate West Africa through Ghana and Nigeria. Besides, South African Express Airways is also looking towards West Africa; while having established a subsidiary - Congo Express, in Central Africa. Several other airlines' efforts to create intra-African connectivity through unfettered market access require policy incentives to materialize. Currently, much is still awaited from the African Union which is driving implementation of the Yamoussoukro Decision through the African Civil Aviation Commission (AFCAC). States should establish effective legal systems to protect investors; while also creating good regulatory frameworks that would, for instance, enhance the ratification and domestication of the Cape Town Convention to help airlines acquire efficient aircraft. States must now assess the impact of the Convention on Africa so far and how to make the Convention more beneficial. Also, strong safety and security oversight systems create investor and user confidence, and States must increase capacities in these aspects. Similarly, investment-friendly fiscal environments with regulations that reduce taxes on aviation imports, for example, must become practical among States. And more African finance institutions should firm up capabilities to support local aviation industry, and boost participation of offshore financiers and export credit agencies in Africa.

Furthermore, many agree that crises can be curbed on the continent, with examples of the emergent State of Southern Sudan, post-crises recovery in Egypt and Tunisia, among others, which are expected to give fillip to new investments. For North Africa, "Fundamentals in that region remain favourable in the medium-term," Mr. Kaberuka assures. Safety improvements are another major incentive to investors, and as regional safety oversight systems are being set up in Africa, the New Partnership for Africa's Development (NEPAD) equally says part of its targets will drive safety, market access and infrastructure development.

However, airlines want such African institutions to provide pragmatic support as opposed to rhetoric pronouncements. While strong public sensitization is essential to galvanize needed action from policy-makers and investors, operators should ensure improved management systems to attract investments and partnerships. Public and private sectors must also work together to provide the needed environment for investments in Africa.

Africa: The Goldmine Of The Future

Air transport, as a key econo-social development driver should be considered a primary focus for investments given the growth in Africa. Investors must realize the essence of securing the future in a key emerging market like Africa. Importantly, too, investors should seek partners within the continent, and improve competitive service delivery to Africa's air transport industry, while efforts are on-going to create a supportive environment for investment. Investors must, however, embrace transparency and align their investments with the development strategies of the region, as Dr. Ngozi Okonjo-Iweala, former Managing Director of The World Bank advised at a forum in China last November.